Australian law - Supreme Court of South Australia upholds London arbitration clause in voyage charterparty

The Supreme Court of South Australia has recently decided that a voyage charterparty is not a "sea carriage document" for the purposes of the Carriage of Goods by Sea Act (Cth) 1991, with the result that an arbitration clause in the contract is not rendered void by its Section 11.

Virtually all contractual shipping documents contain a clause or clauses specifying both the law applicable to the contract and the forum where any disputes arising thereunder shall be determined. In the case of bills of lading and similar documents, a law and jurisdiction clause normally states that the law of a particular country is to govern any disputes arising thereunder and that such disputes are to be resolved by the courts of that country. Sometimes, the clause states that the law and courts of that country are given exclusive rights to determine disputes. In the case of charterparties, whether time or voyage, it is normal for disputes to be resolved by arbitration, rather than by litigation.   There are several well-known and popular fora for arbitration. The two which are probably the most popular are London and New York.

Australia
Despite the fact that such clauses reflect the intention and wish of the parties to the contract to have their disputes decided in a particular forum and in accordance with the law of a particular country, the courts of certain countries often decline to uphold such clauses, especially jurisdiction clauses. Australia is a country which has in place legislation expressly relating to this issue.

Australia has enacted its own Carriage of Goods by Sea Act (COGSA 1991). Section 11 of COGSA 1991 is a voiding provision which operates to, among other things, make ineffective any clause in a sea carriage document, that purports to oust the jurisdiction of the Australian courts to adjudicate disputes arising out of a sea carriage document relating to Australian export or import cargo. The relevant provision of COGSA 1991 states:

"An agreement...has no effect so far as it purports to...preclude or limit the jurisdiction of a court of the Commonwealth or of a State ...in respect of...a sea carriage document relating to the carriage of goods from any place outside Australia to any place in Australia."¹ (Emphasis added.)

The issue of whether an arbitration clause in a voyage charterparty for the carriage of Australian export or import cargo is rendered void by Section 11 of COGSA 1991 has been the subject of discussion among Australian lawyers for some time.  The generally accepted position among legal commentators seems to be that Section 11 should apply mandatorily to voyage charterparties, although this would be an unintended consequence of certain amendments to the legislation.² 

Supreme Court of South Australia
In a case recently heard by the Supreme Court of South Australia,³ this issue was re-considered.

A previous decision by the Supreme Court of New South Wales, based on similar facts but also based on an earlier enactment of COGSA 1991, had found that a voyage charterparty was a "document relating to the carriage of goods". As a consequence, the arbitration clause in that charterparty was rendered illegal, null and void.

The brief facts of the case recently heard by the Supreme Court of South Australia were as follows. Jebsens Orient Shipping Services, as owners, (JOSS) and Interfert Australia, as charterers, (Interfert) were parties to a charterparty on the GENCON 1994 form.   The charterparty contained a clause stipulating that it was to be governed by and construed in accordance with English law, and that any disputes arising under the fixture were to be referred to arbitration in London.

In October 2008 JOSS obtained two London arbitration awards against Interfert in respect of freight that was due under the charterparty in respect of fertiliser shipped to Australia.

Interfert subsequently challenged the validity of the arbitration awards in the Supreme Court of South Australia on the ground that the arbitration clause in the charterparty was rendered void by section 11 of COGSA and therefore the arbitration awards were invalid and should not be "recognised" under the International Arbitration Act 1991 (Cth), the federal legislation giving effect to, among other things, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

The case was considered recently by the Supreme Court of South Australia. The judge determined that a voyage charter party was not a sea carriage document for the purposes of COGSA. He said:
"The COGSA in its current form deals with the rights of persons holding bills of lading or similar instruments. A charterparty is a document of a different genus. A charterparty is not a "sea carriage document" simply because it is a document containing a contract for the carriage of goods by sea."

The judge found that the arbitration awards made in favour of JOSS were valid and enforceable in Australia. The main points advanced by JOSS were that the court should have regard to the definitions contained in the amended Hague Rules when interpreting COGSA itself.  JOSS also argued that a charterparty can not be a "sea carriage document" for the purposes of COGSA because:

(i) a charterparty was not included within the definition of "sea carriage document" found in the amended Hague Rules notwithstanding the common nature of a charterparty in the maritime industry; and

(ii) the amended Hague Rules in fact draw a distinction between charterparties and "sea carriage documents".⁴

The evolution of COGSA (and its predecessors)⁵ was also analysed in support of the proposition that the undeniable conclusion is that Parliament never intended for charterparties to be caught by the cargo liability regime set out in COGSA and therefore should not be subject to the general operation of Section 11.

Conclusion
While this is a significant decision, it is currently restricted to South Australia.   It is understood there is another similar case pending outside South Australia.   It remains to be seen whether this judgment is followed, or whether a different conclusion is reached.  From Gard's perspective, consistency across the states in Australia would be welcome.

Gard News will inform readers of any developments.

Footnotes
¹ The definition of  "sea carriage document " under COGSA 1991 includes "a non‑negotiable document ... that either contains or evidences a contract of carriage of goods by sea".
² COGSA 1991 modified the Hague Rules definition of a "contract of carriage" - which refers to a "bill of lading or any other similar document of title" - to mean "a contract of carriage covered by a sea carriage document (to the extent that the document relates to the carriage of goods by sea)". See also Davies & Dickey, Shipping Law (2004 3rd Ed.) p.280-281.
³Jebsens Orient Shipping Services A/S & Anor v Interfert Australia Pty Ltd & Ors (Unreported. Supreme Court Proceeding No. SCCIV-10-1589).
⁴ See for example Articles 5 and 10 of the amended Hague Rules.
⁵ Sea-Carriage of Goods Act (Cth)1924, Carriage of Goods by Sea Amendment Act (Cth) 1997, Carriage of Goods by Sea Regulations (Cth) 1998, Carriage of Goods by Sea Regulations (No 2) (Cth) 1998.

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